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How does investing in a loan work?

Investors are able to purchase notes, sometimes called 'Promissory Notes', which represent a debt that the borrower owes the investor. The note will have an interest rate associated with it, which is the amount of interest, typically expressed on an annualized basis, that the borrower will owe on the outstanding amount that the investor invested. This amount is typically referred to as a the principal. The note will have a predefined schedule by which the borrower will make payments of principal and interest to the investor, until such time as the investor has received the entire amount of principal and interest due to them in the note agreement.

There are many variations of notes and methods by which investors are paid back, so you will want to study the Offering Materials carefully to make sure you understand the specifics related to the note. Notes can be either secured or unsecured. Secured notes are backed by some form of collateral, that the investor may have the right to take possession of, in the event that the borrower defaults on the payment of the note. Unsecured notes do have this feature.

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